What expenses can you claim against your business profits?

A lot of business owners are not 100% sure what expenses they can and can't claim against their business profits.

By claiming a business expense, you reduce your business profits and therefore pay less tax. Unsurprisingly, HM Revenue & Customs have rules around what you can and can't claim.

As there are so many expenses you could claim, this blog would be incredibly long if I tried to cover them all, so I have had to limit it what you can claim for working from home and business mileage.

The number 1 rule

The number 1 rule to remember is that in order to claim the expense, it must be WHOLLY AND EXCLUSIVELY FOR BUSINESS USE. Basically, the expense can only be claimed if it is only for business use.

Extra rule for claiming employee expenses (applies to company directors)

If you are a director of a limited company, you are technically an employee of the company. Employee expenses have an extra rule in respect of claiming expenses. The expense needs to be wholly and exclusively for business use AND necessary for employment.

There are two ways an expense might be necessary for employment:

Practical necessity - an expense that you couldn't do without, to do your job. For example, if you are a physiotherapist, your membership of The Chartered Society of Physiotherapists (CPS)

Contractual necessity - expenses that need to be incurred as part of the terms of the employee contract. For example, your salesperson's mileage claim for visiting potential clients

How to calculate the business use element of an expense

Let's say you have a mobile phone you use for both personal and business use and it costs £50 per month. The business use is 60%. The calculation is:

£50 x 0.6 = £30

In this instance, you can only claim £30 of your mobile phone cost against your business profits.

What you can claim if you work from home

If you work from home, you have two options:

Apportion your costs, including heating, electricity, council tax, mortgage interest or rent and internet and telephone.

So, if you use one of the five rooms in your home as an office and your rent is £1,200 per month, you can claim 1/5th of this, being £240.

If you only work from home 2 days per week, you must apportion this further. So, in this instance, you can only claim £68.57 per month (£240/7 x 2)

Use HMRC's simplified expense figures. The amount you can claim depends on how many hours per month, you work from home. You also have to work a minimum of 25 hours per month.

Here is a table showing the flat rates you can claim, based on the hours your work from home:

How much can you claim for business mileage?

This is a table showing the simplified expenses amount for vehicles that you use for business mileage.

IMPORTANT - If you claim capital allowances on your vehicle, you can't use this.

Summary

It is important to remember the number 1 rule when deciding if you can claim an expense as a business one. It can only be claimed if it is to do with your business only.

The Box has a comprehensive list of the expenses you can claim and also simple expense claim templates for you to download too.